Economists knock Fair Work decision to keep penalty rates

Under the penalty rates, weekly employees are entitled to a 25 per cent premium for working Saturdays and 50 per cent for working Sundays.
Photo: Michele Mossop

by
Jason Murphy | Mathew Dunckley

Economists say a decision by the Fair Work Commission to uphold steep penalty rates for weekends and public holidays will hurt workers.

Deloitte Access Economics partner and former Fair Pay Commission chairman
Ian Harper
said high penalty rates were keeping young people out of work.

“If you can’t offer any work for them because you are obliged to pay them these rates and you can’t make it pay because the consumer won’t pay, when you have got young people who would like to work and aren’t working, consumers who want to have a cup of coffee not being served, what is being gained?" he said.

Those larger factors also played a part in whether a business would open or not, he said. “There is more that goes into the decision on opening your doors than just penalty rates," he said.

Melbourne Institute professorial research fellow Mark Wooden said mandatory penalty rates inhibited employment by artificially keeping costs high. “I just came back from Europe and you don’t think of Europe as being a cheap place for eating out but it is cheaper than Australia," he said.

Cutting mandated penalty rates would create more jobs, he said.

“You’d have to think the prices will go down and more of us will go out for dinner and therefore there will be more jobs," he said.

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Under the award, weekly employees are entitled to a 25 per cent premium for working Saturdays and 50 per cent for working Sundays.

On public holidays, they are entitled to two-and-a-half times their usual wage. On top of that, employees who work between 10pm and midnight get a further 10 per cent while those working between ­midnight and 7am gain 15 per cent. The basic hourly wages in the hospitality sector range from $16.37 to $20.80 per hour.

Employer groups wanted changes so workers only received penalty rates when they worked more than five days in a row.

Ruling not surprising

Fair Work Commission deputy commissioner Anne Gooley’s decision found that while there was “some evidence that some restaurants may open on Sundays if penalty rates were reduced, it is far from compelling".

Professor Wooden said he was not surprised by the ruling. “They are the mob who ­ultimately – them and their hundred years of history – are the reason we have penalty rates," he said.

University of Canberra economics professor Phil Lewis gave evidence to the FWC that market forces could make sure rates were appropriate.

“There’s a very competitive market for that labour. There is retail, there is the fast food sector, there is licensed clubs. If restaurants don’t pay a ­reasonable wage, then they will find it very hard to recruit people," he said.

“My argument is basically the ­market should determine what the appropriate wage should be."

He expressed little confidence in the FWC’s ability to absorb economic evidence.

“I think the Fair Work Commission – the whole institution – by its very nature is to set wages and conditions," he said.

“I think there is reluctance to accept evidence from people who believe ­setting wages may be inappropriate in some way."